Worldview with Suhasini Haidar | India-UAE FTA: what does it mean for bilateral ties?

Worldview with Suhasini Haidar | India-UAE FTA: what does it mean for bilateral ties?

The government scores its first big FTA in a decade, what does it mean for ties between India, the UAE, and the larger Gulf region?

India and the UAE announced the launch of their free trade agreement or Comprehensive Economic Partnership Agreement as Prime Minister Narendra Modi and the UAE Deputy Commander, Crown Prince of Abu Dhabi Sheikh Mohammad bin Zayed held a virtual summit on Friday. PM Modi was due to visit Abu Dhabi in January, a trip that cancelled due to the Omicron wave of Covid- and while he still might go next month, before the Dubai Expo ends on March 31, the two sides decided to delay the launch of CEPA no further.

The agreement is a first in many ways

A first for the Modi government, that had till 2020 eschewed all free trade agreements as unfair to India, cancelled all Bilateral Investment Treaties, and walked out of the RCEP negotiations after eight years

This is in fact, the first big FTA signed by India in 10 years, although it signed the CECPA with Mauritius in February 2021

It’s a first amongst other FTAs being negotiated today- there’s one with the UK being negotiated, also Australia which have timelines to them, and others like with the EU and Gulf countries, and Canada- but the UAE has come first

For the UAE, which has the benefit of several FTAs within the Gulf Cooperation Council- of 6 states- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE, this is one of a few FTAs it has signed independently

So what will the India UAE CEPA mean for relations?

It will give a push to Bilateral trade- which at present is valued at about $59 billion pre-pandemic and in 2019, UAE was India’s third largest trading partner, and India was the UAE’s second largest trading partner- for non-oil trade

This could also mean more UAE investment- currently billed about $18 billion- of which about 11.6 is actual FDI and the rest is portfolio investment

The CEPA with the UAE could pave the way for a broader FTA with the GCC countries- for which a framework agreement was signed in 2004, and FTA talks were launched in 2006

More engagement through the West Asia Quad or MEQ- that was launched last year by US-Israel-India-UAE as a platform for economic cooperation

Now, trade is really one of the biggest pillars of the ties between India and the UAE, also the GCC

1. History of trade ties with GCC countries has been documented to at least 4,000 years ago

Right back to links between the Mesopotamian and Indus valley civilisations. The trade, which was done by barter focused traditionally on goods like dates, pearls, frankincense and fish, from the Gulf- and Indian finished goods became the bulk of supplies to the Arabian peninsula.

The British controlled the Gulf from the Bombay Presidency- few would know that until the 1870s the Indian rupee was legal tender in 5 of 6 GCC states- all except Saudi Arabia

Today India and UAE are aiming to cross $100 billion in bilateral trade in 5 years- where fuel, apparel, gems and jewellery and electric machinery power the relationship-

2. Energy: In the modern world we look to 1962, when India first imported oil from Abu Dhabi, and then energy ties transformed relations- and even changed the balance of ties. In 2020, Saudi Arabia at 38 million tonnes and UAE at 22 million tonnes were the 2nd and 3rd largest source of India’s oil imports, and constitute about half its crude requirements

3. Labour: India’s vast migrant labour population to the Gulf – about 8 million in all is another major tie that binds India and the UAE- With about 3.5 million Indians working in the Emirates- Indian’s are the largest ethnic community- about 30% of the population- in all walks of services- Administrative, Health and Tourism and labour- and send remittances home of about $14 billion a year

4. Apart from People to people ties- it is the ties between leaders that have been particularly strengthened- and it is here that PM Modi’s government is given the biggest credit- When PM Modi travelled to the UAE in 2015, it was the first in decades by an Indian PM. Both sides have made rare exceptions for the other- In 2017, Mr. Modi invited MBZ, who is not a head of state or government as Republic day chief guest for the first time, In April 2019, the UAE decided to award Mr. Modi its highest civilian Order of Zayed, something unprecedented as Indian elections were underway. In 2019, ties had grown so close that the UAE even invited EAM Sushma Swaraj to address the Organisation of Islamic Countries (OIC) a grouping India is not a member of, for the first time.

In the past decade- new areas of cooperation have come up:

Defence and Strategic partnerships: India and UAE signed a comprehensive strategic partnership in 2017, and hold annual defence dialogues. More recently, UAE is a key part of Indian Ocean Region dialogue. Both sides take part in military exercises with each other and there have been several Military chiefs visits.

Terrorism- extradition and support: From being seen as a safe have for some of India’s most wanted terrorists and underworld figures- most notably Dawood Ibrahim, post 2001, the UAE decided to change policies, and now cooperates with India both on extraditing fugitives and terror suspects as well as intelligence sharing

Jammu and Kashmir- After the Modi government’s move on Article 370 and bifurcating Jammu Kashmir, the UAE was one of the first countries to offer its support, and has subsequently signed a number of MoUs promising investment and infrastructure in J&K and starting flights. This is significant, as the UAE had traditionally supported Pakistan on the issue.

An interesting aside is the role the UAE says it has played in mediation between India and Pakistan, and over the past 3 years, Dubai has facilitated meetings between interlocutors including NSA Doval and Pakistan military officials.

Technology partnerships: India and the UAE have signed a number of digital innovation, technology partnerships, and also plans for ISRO and UAESA to cooperate on missions like the Red Moon mission. The Emirates has offered “golden visa” residency permits for doctors, engineers, PhD scholars and specialists in high-end technology fields such as artificial intelligence (AI), Big Data, virology and epidemiology, and brought over the former ISRO chief K. Radhakrishnan to their space agency.

So where are the areas where India and the UAE face their biggest challenges?

Balancing geopolitics- India with Iran (also played out over Yemen) and UAE with China

Energy pricing: As an OPEC country UAE is on the side of the debate, where India as a major oil consumer is arguing for a cap on prices- this has seen some heated words between oil ministers in the past

India and UAE are yet to renegotiate their air services agreement, which has become a thorn in ties, because the UAE wants to increase the number of flights to India and the number of destinations, but India continues to cap these to protect Indian airlines.

Treatment of Indian labour- this frequently flares up as Indians aren’t granted citizenship in the UAE, and conditions at Indian labour camps become a matter of concern. During the pandemic much of the labour to the gulf has had to return, and remittances are likely to be slashed in the next few years

Treatment of minorities in India is becoming a big issue- After the CAA protests, social media controversies, now the Hijab Ban has raised concerns in Gulf countries, and the OIC issued a very strong statement. And conversely, although very few, less than 100 Indians based in the Gulf joined ISIS, or earlier Al Qaeda, the export of radicalisation is always a concern

Clearly the Gulf, and particularly the UAE is an old relationship made new in the last few years. While the Modi government has made great strides in strengthening relations at the top, it must watch for a reaction in Islamic Gulf countries to India’s domestic tensions, especially given the number Indians that live in the region.

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